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IMF Agreement Is Not A “Magic Cure,” Claims Shehbaz

July 2, 2023 / By Zunair Tahir / Pakistan News

Prime Minister Shehbaz Sharif stated that the current arrangement is not a panacea and that he hopes it would “be the last one” shortly after the government received a much-needed $3 billion short-term financing package from the IMF.

A Friday IMF accord was set to expire only hours before the new nine-month standby agreement was announced. Now, the IMF’s board must approve the staff-level agreement with Pakistan later this month.

Although the accord provided a “much-needed breather,” Prime Minister Sharif stated he hoped this new program would be “the last one.”

Hours before the last package’s expiration, a nine-month standby agreement is announced;
The IMF board must approve a $3 billion package later this month.
Despite his insistence that loans do not build nations, the PM calls the current agreement a “much-needed breather.”

“This is not a time for arrogance, but rather for reflection on reality. Do countries manage without loans? Let’s pray that this is the last time we obtain a loan from the IMF and that we won’t need to do so in the future, he said to the media in Lahore on Friday after the agreement was reached.

The conversations he had last week in Paris with IMF Managing Director Kristalina Georgieva were characterized by him as a “turning point” in a string of recent negotiations with the international organization.

As it struggles to pay off debilitating external debt, the economy is experiencing a balance of payments crisis, and months of political unrest have discouraged foreign investment.

The country is struggling to afford imports as a result of skyrocketing inflation, the rupee’s record low against the dollar, and a country-wide decrease in industrial production.

“I am pleased to announce that the IMF team has reached a staff-level agreement with the Pakistani authorities on a nine-month standby arrangement in the amount of SDR 2,250 million (about $3bn),” IMF mission leader Nathan Porter said in a statement late Thursday.

According to Mr. Porter, the agreement will be evaluated by the IMF executive board by mid-July.

Since last November, the administration has been trying to satisfy the terms of the bailout arrangement by making hurried modifications to the national budget. According to Mr. Porter, it ended on Friday, and the new pact builds on the IMF’s initiatives under the earlier accord.

A $1.1 billion advance payment would be made under the revised agreement, according to Finance Minister Ishaq Dar, immediately after the IMF board meeting this month.

The agreement will also make other finance available on a bilateral and international basis. Saudi Arabia, the UAE, and China, longtime friends, have already committed or extended billions in credit. The IMF stated that this “will support near-term policy efforts and replenish gross reserves.”

According to Tradeweb statistics reported by Reuters, Pakistan’s sovereign dollar bonds were trading higher after the announcement, with the 2024 issue seeing the greatest gains, up more than 8 cents at little above 70 cents in the dollar.

Shorter-dated bonds had the biggest increases, showing ongoing doubts about the nation’s longer-term budgetary picture.

Later, on Friday night, PM Shehbaz tweeted that the new IMF agreement was a “much-needed breather” that will aid the nation in achieving economic stability. He stressed, nevertheless, that “loans are not used to build states. I ask God that this new program will be the last.

Miftah Ismail, a former finance minister, wrote in a tweet, “We must acknowledge that this IMF accord affords us yet another opportunity to make significant reforms. The people of Pakistan will continue to suffer for the structural and governance failings of their governments if we don’t implement these changes, leaving Pakistan at the mercy of multilateral lenders.

Pakistan’s poor progress in fulfilling the conditions set forth by the IMF for an agreement has drawn criticism from Michael Kugelman, head of the South Asia Institute at the Wilson Centre.

He stated that Islamabad has postponed politically hazardous fiscal policy actions that the IMF had been hoping to see for months.

IMF Agreement Is Not A “Magic Cure,” Claims Shehbaz

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